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Petrobras (PBR) Raises $1.5B in IPO, Eyes 3 Offshore Blocks

Brazilian state-run Petróleo Brasileiro S.A. or Petrobras PBR recently announced that its fuel distribution unit Petrobras Distribuidora S.A. has managed to raise $1.5 billion (R$5.02 billion) in an initial public offering ("IPO") even though it priced the shares at R$15, the lower end of its suggested price range.

The company increased the size of the offering to make the most of it. The listing was Brazil’s largest since July when the local unit of supermarket chain Carrefour SA (CRRFY) received R$5.12 billion. The IPO has been a topic of discussion between Petrobras and the financial institutions for two years.

The success of the IPO signifies that the company has emerged from the threat to its credit rating caused by the multibillion-dollar money laundering and bribery case.

In another development, the company also disclosed its intention to exercise its right of first refusal over three of the overall blocks, which will be auctioned in June 2018. Petrobras can opt for at least 30% stake in each pre-salt blocks offshore Brazil. The company is eyeing the Dois Irmãos, Três Marias and Uirapuru blocks. The move is expected to strengthen the exploration portfolio of Petrobras.

About the Company

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities. The company operates in six segments: Exploration and Production (E&P), Refining, Transportation and Marketing, Distribution, Gas and Power, Biofuels and International.

Considering Brazil's huge pre-salt oil reserves – estimated at 9.5 to 14 billion barrels of oil equivalent and widely thought to be the most important oil find in recent years – we believe Petrobras is in an enviable position to maintain an impressive production growth profile for years to come.

However, the company has massive debt loads as it carries a net debt of more than $88 billion, with net debt-to-capitalization ratio of approximately 51%. As such, leverage remains a key area of concern for the firm.

In addition, Petrobras has lost 6.2% of its value year to date against 5.6% growth of its industry.

Zacks Rank and Stocks to Consider

Petrobras has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Northern Oil and Gas, Inc. NOG, Holly Energy Partners, L.P. HEP and ConocoPhillips COP. Northern Oil and Gas and Holly Energy sport a Zacks Rank #1 (Strong Buy) while ConocoPhillips has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Minnetonka, MN -based Northern Oil and Gas is an independent energy company. The company’s sales for the fourth quarter of 2017 are expected to grow 51.9% year over year. The company pulled off an average beat of 175% in the last four quarters.

Dallas, TX-based Holly Energy is a production pipeline company. The company’s sales for 2017 are expected to climb 10.4% year over year. The company came up with a positive earnings surprise of 57.1% in the third quarter of 2017.

Houston, TX-based ConocoPhillips is a major global exploration and production company. The company’s sales for 2017 are expected to increase 24.4% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

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